What is the difference between planned and unplanned inventory accumulation? Write down the relationship between change in inventories and value-added of a firm.

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Solution

Planned Inventory: In case of an expected fall in sales, the firm will have unsold stock of goods which had not been anticipated. Hence, there will be planned accumulation of inventories.

Unplanned inventory accumulation: In case of an unexpected fall in sales, the firms have unsold goods which it had not anticipated. Hence there will be an unplanned accumulation of inventories.

Relation between Change In Inventories and Value Added:

Change in inventories of a firm during a year = value added + intermediate goods used by the firm - sales of the firm during a year and value-added in the net contribution made by a firm in the process of production.

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